- WELL above average volume
- At least one hour of consolidation
- Breakout occurs after 2:30 eastern
- No major multiday resistance near the breakout level
Tuesday, September 30, 2014
For those of you who read my last blog post, you saw that a Nasdaq long setup I used to frequently play was afternoon breakouts. A shift in my focus, as well as a nasty GENE loss (which I fully deserved for breaking rules), kept me from playing these for awhile. To recap, here's the criteria I look for in order to make a play:
Today I was pleased to see a breakout opportunity set up with former runner SPEX. Coming into today, here is what SPEX's daily chart looked like:
You can see that most days trade very little volume, but back in May it had a huge two-day run with MUCH heavier volume. This morning, SPEX quickly had a morning spike to a high of $1.38 on increased volume, then pulled back and consolidated for most of the day:
I saw the chart consolidating and holding, however, I chose not to buy in anticipation of the breakout as trades like that are too much of a gamble for me. I prefer to wait for the breakout to actually occur. According to my rules, I needed the breakout to occur after 2:30 eastern as well.
At 2:47, I got the breakout I was waiting for. Over the next ten minutes I accumulated 35,000 shares long from a $1.377 average, right around the breakout area. You can see that the breakout didn't hold perfectly, and the stock briefly dipped below $1.38. That didn't bother me. In my experience, this is not at all uncommon, and breakout levels rarely act perfectly as support. I would have become concerned if the stock had dipped more severely, perhaps below $1.30.
I began selling my shares into the close and continued to sell them after hours. As of writing this, I have about 5700 left long. I think SPEX could very possibly gap up. However, I prefer not to have any overnight risk, especially on the long side, where I'm less comfortable trading. In my opinion afternoon breakouts are a high-odds, low-risk setup, and I will continue to look to trade them in the future.